Credit repair usually is a scam

On Mondays, we post a question from a reader and answer from Dan Danford. If you have a question, please post it in the comments section or e-mail us.

QUESTION: I get offers from places that want to help me repair my credit. Are these organizations credible? Can they do what they say they can do? What can I do on my own?

ANSWER FROM DAN DANFORD: Few credit counseling companies are credible. Look at it this way: how could a company earn money and make profits from people who are in financial trouble? They don't have money to pay for this service. All you need to know is that there's no profit in it, so it can't work well as a stand-alone company.

So they aren't stand-alone companies. For the most part they are part of bigger organizations with other products to sell. In the past decade, mortgage companies used this device extensively. The credit "counseling" service was actually a sales tool for refinancing the house (again and again and again). Mortgages companies often made huge profits, so those groups could afford to hire credit "counselors." In fact, these people were carefully-trained recruiters for mortgage companies. If any good could come from our current economic woes, it is that this type of credit counseling and mortgage scam is rarer today than it was five years ago. Sadly, other organizations were (and are) waiting in the wings.

One exception is worthy of mention. Faith-based financial programs have become more common as more and more families struggle with debt. Many times, these groups teach about money and team younger families with experienced volunteer mentors who help devise and implement a financial plan. Ongoing encouragement and genuine advice can produce dramatic results. Dave Ramsey, especially, has created quality educational materials and step-by-step guidelines for fixing a broken family.

The sad truth is that getting out of debt is much harder than getting in. There are no quick fixes, and it takes a lot of foresight and discipline. Those aren't things you can buy at a store and they aren't things someone can do for you. Therefore, right now, credit counseling isn't a viable product in the marketplace. Better to visit the library for a good book on personal finance.